Supervalu Gets 'A' for Vision, But Challenges Loom

For those accustomed to CEO conference calls with financial analysts, which typically focus on near-term developments, last week's Supervalu presentation was a big departure. Craig Herkert, the company's president and CEO, outlined a comprehensive vision[3] for the distributor to revitalize its business. His comments coincided with the end of another challenging quarter that included lower identical-store sales in the face of the downturn and a highly competitive environment.

Herkert's plan addressed all aspects of the business and included the following:

• Growing market share by focusing on geographic opportunities over strategies based on banners or company divisions.

• Achieving cost savings by leveraging purchasing power across divisions.

The full game plan is far more detailed than can be outlined here, and the overall vision is a good one: to be “America's neighborhood grocer,” a concept that helps unify the organization across far-flung banners and operating units.

The big challenge will be making this all happen, because major change is generally more complicated than organizations anticipate.

For instance, Herkert described the plan to “grow by emphasizing geography over banner and ownership,” which he said means choosing “the format that best serves the given neighborhood, be it a Supervalu banner store or one operated by a business partner [a licensee or wholesale customer].” This new approach makes sense, but it will presumably involve knocking down a lot of traditional walls and remaking relationships in the organization. This will take time and active leadership.

The new procurement goal of leveraging purchasing across the organization is logical. Herkert said this process will also help the company make decisions about optimizing SKUs and coordinating national-brand and own-brand strategies. Once again, these kinds of ambitious plans will take time and focus to accomplish.

Meanwhile, the company aims to accelerate Save-A-Lot's growth and it made structural changes that increase the likelihood this will happen.

Herkert's vision seems solid, and he is aware that big challenges lie ahead. During the analyst call, he said, “We have got a lot of organizational work to do to bring this vision to light.” Long-term efforts will have to be tackled alongside any near-term moves to improve competitiveness and increase revenues.

How will we know if the company is succeeding? Fortunately, Herkert laid down some long-term guideposts for success, including an eventual top-line annual growth rate of about 4%, an annual improvement in EBITDA of 8%, and a 10% annual bottom-line increase. These will be among the important markers to watch in determining if Supervalu is on track with its journey.